How to Create a Legal Loan Agreement

Written by angelique de la morreaux
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How to Create a Legal Loan Agreement
Lend money based on written contracts. (money makes money image by Andrey Andreev from Fotolia.com)

Follow the lending procedures used by businesses and banks when they lend money to a consumer. Prepare a legally binding written contract agreement which details each term required before you lend money to another. Determine the repayment plan, method of repayment and penalties that may attach, and what acts constitute a breach of the written contract. Learn how to protect your money and prepare a legal agreement before lending money.

Skill level:
Moderate

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Things you need

  • Paper
  • Pen
  • Copy machine
  • File
  • Check, bank draft, money order

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Instructions

  1. 1

    Discuss the terms of the agreement with the other parties involved. Determine the amount of the loan, how loan is to be repaid, and the penalties if it is not. Negotiate late payments, partial payments and interest.

  2. 2

    Prepare the terms of the contract into a written document. Have the other party sign and date the document, then sign and date document yourself.

  3. 3

    Copy the document and hand the copy to the person receiving the loan. Put the original document into a secure location or file.

  4. 4

    Prepare the loan payment. Use a written instrument, such as a check or money order, and include loan on the face of the instrument. Make a copy for your file and hand the original to the person receiving the loan.

Tips and warnings

  • Write down all terms. Keep copies in a safe place. Ensure that all document describes transaction as a loan.
  • Do not give cash: a record may be required for court proceedings. Any terms not in the contract may be difficult to prove in court.

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